UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended December 31, 2017June 30, 2023

For the transition period from _____ to _____

Commission File Number:000-53832

VITALITY BIOPHARMA,MALACHITE INNOVATIONS, INC.

(Exact name of registrant as specified in its charter)

(216)304-6556

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes[X]Yes ☒ No [  ]☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] ☒ No [  ]☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] ☐ No [X] ☒

As of February 14, 2018,August 1, 2023, there were 24,200,14780,850,148 shares of the registrant’s common stock outstanding.

VITALITY BIOPHARMA,MALACHITE INNOVATIONS, INC.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended

December 31, 2017June 30, 2023

INDEX

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

VITALITY BIOPHARMA,MALACHITE INNOVATIONS, INC.

CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINESIX MONTHS ENDED DECEMBER 31, 2017JUNE 30, 2023 AND 20162022

(Unaudited)

VITALITY BIOPHARMA,MALACHITE INNOVATIONS, INC.

CONDENSEDCONSOLIDATED BALANCE SHEETS

TheSee accompanying notes are an integral part of these condensedto the consolidated financial statements.

VITALITY BIOPHARMA,MALACHITE INNOVATIONS, INC.

CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

TheSee accompanying notes are an integral part of these condensedto the consolidated financial statements.

VITALITY BIOPHARMA,MALACHITE INNOVATIONS, INC.

CONDENSED STATEMENTCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

NINETHREE AND SIX MONTHS ENDED DECEMBER 31, 2017JUNE 30, 2023 AND 2022

(Unaudited)

TheSee accompanying notes are an integral part of these condensedto the consolidated financial statements.

VITALITY BIOPHARMA,MALACHITE INNOVATIONS, INC.

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

TheSee accompanying notes are an integral part of these condensedto the consolidated financial statements.

VITALITY BIOPHARMA,

MALACHITE INNOVATIONS, INC.

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINESIX MONTHS ENDED DECEMBER 31, 2017JUNE 30, 2023 AND 20162022

(Unaudited)

1. BUSINESS OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Vitality Biopharma,Malachite Innovations, Inc. (the “Company”, “we”, “us”, “our” or “our”“Malachite”), was incorporated in the State of Nevada on June 29, 2007. The Company’s fiscal year endMalachite is March 31.a public holding company dedicated to improving the health and wellness of people and the planet through a novel and innovative approach to impact investing. Malachite owns and operates a balanced portfolio of operating businesses focused on developing long-term solutions to environmental, social and health challenges, with a particular focus on economically disadvantaged communities. Malachite takes an opportunistic approach to impact investing by leveraging its competitive advantages and looking at solving old problems in new ways. Malachite seeks to thoughtfully allocate its capital into ventures that are expected to make a positive impact on the people-planet ecosystem and generate strong investment returns for our shareholders.

Originally founded in 2007 as Legend Mining Inc., the Company began operations as a mineral extraction exploration business. In 2011, the Company changed its name to Stevia First Corp. and pursued a new strategy focused on developing stevia-based additives for the food and beverage industry. In 2015, the Company developedchanged its name to Vitality Biopharma, Inc. and pursued a new classstrategy focused on developing cannabinoid-based prodrugs anticipated to treat inflammatory conditions of the gastrointestinal tract by unlocking the therapeutic properties of cannabinoids knownbut without their unwanted psychoactive side effects.

In October 2021, the Company changed its name to Malachite Innovations, Inc. and reorganized its corporate structure and created the following two wholly-owned operating subsidiaries: (i) Graphium Biosciences, Inc., a Nevada corporation (“Graphium”), into which the Company contributed all of its drug development assets; and (ii) Daedalus Ecosciences, Inc., a Nevada corporation (“Daedalus”) which was formed to serve as cannabosides, which were discovered through application ofa holding company for the Company’s proprietary enzymatic bioprocessing technologies originally developed for stevia sweeteners. future impact investing operating businesses.

In 2016, the Company received approvals from the U.S. Drug Enforcement Administration (the “DEA”May 2022, Daedalus acquired Range Environmental Resources, Inc., a West Virginia corporation (“Range Environmental”) and Range Natural Resources, Inc., a West Virginia corporation (“Range Natural” and together with Range Environmental, the State“Range Reclamation Entities”). The Range Reclamation Entities provide land reclamation, water restoration and environmental consulting services to mining and non-mining customers throughout the Appalachian region with the goal of Californiareturning land to initiate studiespre-mining conditions or repurposing the land for natural, commercial, agricultural or recreational use. The Range Reclamation Entities’ water restoration services seek to improve rivers, streams and manufacturing scale-up atdischarges through novel and innovative treatment applications to help customers meet their various regulatory standards and requirements. The Range Reclamation Entities also provide environmental consulting services to customers typically in connection with land reclamation and water restoration projects and as an additional value-add service, sells water treatment chemicals manufactured by third parties to their customers. Range Natural also provides resource mining services for customers incidental to the reclamation and repurposing of mine sites.

On December 31, 2022, Daedalus was merged into Malachite Innovations, Inc., leaving Malachite Innovations, Inc., as the parent company and the Range Reclamation Entities, Aether Credit Ventures, Inc., NextGen AgriTech, Inc., Pristine Stream Ventures, Inc., Range Security Resources, Inc., Terra Preta, Inc. and Graphium as its research and development facilities in order to develop cannabosides as pharmaceutical products.wholly-owned subsidiaries.

Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, forduring the ninesix months ended December 31, 2017,June 30, 2023, the Company incurred a net loss of $3,246,847$190,098 and used $398,399 of cash in the Company’s operating activities of $2,180,055.activities. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s March 31, 2017 financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these financial statements are issued. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

The ability to continue as a going concern is dependent on the Company attaining and maintaining profitable operations in the future and/or raising additional capital to meet its obligations and repay its liabilities arising from normal business operations when they come due. We estimate thatThe Company estimates, as of December 31, 2017 we haveJune 30, 2023, that it has sufficient funds to operate the business for 12 months given its cash balance of $359,564, line of credit availability of $800,000, and revenues being generated by the next nine months. In December 2017,Range Reclamation Entities. Although the Company’s existing cash balances are estimated to be sufficient to fund its currently planned level of operations, the Company issued an aggregate of 933,332 shares of our common stock and warrants to purchase 466,667 shares of our common stock to certain investors for net proceeds of approximately $1,395,000 and in July 2017, the Company issued an aggregate of 666,667 shares of our common stock and warrants to purchase 333,334 shares of our common stock to certain investors for net proceeds of approximately $995,000. We will requireis actively seeking additional financing and other sources of capital to fund our planned future operations, includingaccelerate the continuationfunding and execution of our ongoing researchits growth strategy and development efforts, licensing or acquiring new assets, and researching and developing any potential patents and any further intellectual property that we may acquire. Further,value creation plan. However, these estimates could differ if we encounterthe Company encounters unanticipated difficulties, in which case our current funds may not be sufficient to operate our business for that period. In addition, ouror if its estimates of the amount of cash necessary to operate ourits business may prove to be wrong, and we could spend ourthe Company uses its available financial resources much faster than weit currently expect.

We do not haveexpects. No assurance can be given that any firm commitments for future capital. We will need to raise additional funds in order to continue operating our business and pursue and execute our planned research and development and commercial operations. We do not presently have, nor do we expect in the near future to have, sufficientfinancing or consistent revenue to fund our business from our operations, and will need to obtain significant funding from external sources. Since inception, we have funded our operations primarily through equity and debt financings, and we expect to continue to rely on these sources of capital, in the future. However, if we raise additional funds by issuing equity or convertible debt securities, our existing stockholders’ ownershipneeded, will be diluted, and obtaining commercial loans would increase our liabilities and future cash commitments. If we pursue capital through alternative sources, such as collaborationsavailable or, other similar arrangements, we may be forced to relinquish rights to our proprietary technology or other intellectual propertyif available, that could result in our receipt of only a portion of any revenue that may be generated from a partnered product or business. Further, these or other sources of capital may not be available on commercially reasonable or acceptable terms when needed, or at all. If we cannot raise the money that we need in order to continue to operate and develop our business, weit will be forcedon terms that are satisfactory to delay, scale back or eliminate some or all of our operations. If any of these were to occur, there is a substantial risk that our business would fail and our stockholders could lose all of their investment.the Company.

Basis of Presentation of Unaudited Condensed Financial Information

The unaudited condensedconsolidated financial statements include the accounts of the Company for the three and nine months endedits wholly-owned subsidiaries, Aether Credit Ventures, Inc., Graphium Biosciences, Inc., NextGen AgriTech, Inc., Pristine Stream Ventures, Inc., Range Environmental Resources, Inc., Range Natural Resources, Inc., Range Security Resources, Inc., Terra Preta, Inc., and Daedalus Ecosciences, Inc. (merged into Malachite Innovations, Inc. on December 31, 20172022), and 2016 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, applied on a consistent basis,America. Intercompany balances and pursuant to the requirements for reporting on Form 10-Q and the requirements of Regulation S-K and Regulation S-X promulgated under the Securities Act of 1933, as amended (the “Securities Act”). Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete audited financial statements. However, the information includedtransactions have been eliminated in these financial statements reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the Company’s financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year or any future annual or interim period. The balance sheet information as of March 31, 2017 was derived from the Company’s audited financial statements as of and for the year ended March 31, 2017 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on June 28, 2017. These financial statements should be read in conjunction with that report.consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Significant estimates

Revenue Recognition

The Company recognizes revenue under ASC 606, “Revenue from Contracts with Customers”. The core principle of the revenue standard is that a company should recognize revenue by analyzing the following five steps: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and assumptions(5) recognize revenue when (or as) each performance obligation is satisfied. The Company primarily invoices customers and recognizes revenue on a periodic basis for equipment and labor hours provided to a customer on a particular job based on an agreed-upon hourly rate sheet or a fixed amount for a project. The Company also invoices customers and recognizes revenue for equipment mobilization fees and materials and supplies required to complete a project. The Company invoices for the sales of chemicals and recognizes revenue when the products are delivered to the customer’s designated site. Costs for equipment, labor and chemicals are generally expensed as incurred since the projects are generally short-term and not subject to a contract. The Company also invoices customers for the provision of environmental security services on an agreed-upon hourly rate for each project. All revenue is recognized at a point in time.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the date of acquisition to be cash equivalents. From time to time, the Company’s cash account balances exceed the balances covered by management include, among others, reserves forthe Federal Deposit Insurance System. The Company has never suffered a loss due to such excess balances.

Accounts Receivable

Trade accounts receivable the fair value of equity instruments issued for services, and assumptions used in the valuation of derivative liabilities and the valuation allowance for deferred tax assets, and the accrual of potential liabilities.

Financial Assets and Liabilities Measuredare stated at Fair Value

The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis. Financial assets recorded at fair value in the balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value. Authoritative guidance provided by FASB defines the following levels directly related to the amount of subjectivity associated withmanagement expects to collect from the inputs to fair valuation of these financial assets:

The fair value of the derivative liabilities of $201,836 and $240,791 at December 31, 2017 and March 31, 2017, respectively, were valued using Level 2 inputs.

The carrying value of cash and accounts payable and accrued liabilities approximates their fair value because of the short maturity of these instruments. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.

Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a probability weighted average Black-Scholes-Merton models to value the derivative instruments at inception and on subsequent valuation dates through the December 31, 2017, reporting date. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluatedbalances outstanding at the end of each reporting period.fiscal period reflected in the consolidated balance sheets. Based on management’s assessment, it has concluded that losses on balances outstanding as of those dates will be immaterial and, therefore, no allowances were recorded for the three months ended June 30, 2023 or the three months ended June 30, 2022. Accounts receivable were $1,273,635 and $981,385 at June 30, 2023 and December 31, 2022, respectively. No bad debt expense was accrued in either the three months ended June 30, 2023 or the three months ended June 30, 2022 and there is no allowance for doubtful accounts as of June 30, 2023 or December 31, 2022.

Unbilled Receivables

Unbilled receivables represent revenue that has been recognized on projects for which billings have not been presented to the customer because the amounts were earned but not billable at the balance sheet date.

Equipment

Equipment is carried at cost. Expenditures for maintenance and repairs are charged to cost of services. Additions and betterments are capitalized. The cost and related accumulated depreciation of equipment sold or otherwise disposed of are removed from the accounts and any gain or loss is reflected in the current year’s earnings.

SCHEDULE OF EQUIPMENT

The Company provides for depreciation of equipment using the straight-line method for both financial reporting and federal income tax purposes over the estimated six-year useful lives of the equipment.

The Company assesses the recoverability of its equipment by determining whether the depreciation of the assets over their remaining lives can be recovered through projected future cash flows generated by the assets. There were no assets identified for impairment.

Delivery Costs

Delivery costs are classified as cost of sales.

Goodwill

Goodwill is tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not (i.e., a likelihood greater than 50%) that the intangible asset is impaired.

Income Taxes

The Company follows the asset and liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the estimated tax consequences attributable to differences between the financial statement carrying values and their respective income tax basis (temporary differences). The effect on deferred income tax assets and liabilities of a change in tax rates is recognized as income (loss) in the period that includes the enactment date.

Leases

The Company determines whether a contract is, or contains, a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at lease commencement in determining the present value of unpaid lease payments. As of June 30, 2023, the Company had no lease commitments for longer than one year.

Stock-Based Compensation

The Company periodically issues stock options and warrantsrestricted stock awards to employees and non-employees in non-capital raising transactions for services and for financing costs.services. The Company accounts for share-based payments undersuch grants issued and vesting based on ASC 718, Compensation-Stock Compensation whereby the guidance as set forth in the Share-Based Payment Topicvalue of the FASB Accounting Standards Codification (“ASC”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, officers, directors, and consultants, including employee stock options, based on estimated fair values. The Company estimates the fair value of share-based payment awards to employees and directorsaward is measured on the date of grant using a Black-Scholes-Merton option-pricing model, and recognized for employees as compensation expense on the straight-line basis over the vesting period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services. The Company recognizes the fair value of stock-based compensation within its Consolidated Statements of Operations with classification depending on the nature of the services rendered.

The fair value of the portion ofCompany’s stock options is estimated using the award that is ultimatelyBlack-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected to vest is recognized as expense over the required service period in the Company’s statements of operations. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance whereas the valuevolatility, expected life of the stock compensationoptions or restricted stock, and future dividends. Compensation expense is recorded based upon the measurement date as determined at either a)value derived from the date at which a performance commitment is reached, or b) the date at which the necessary performance to earn the equity instruments is complete. Stock-based compensation isBlack-Scholes-Merton Option Pricing model and based on awards ultimately expected to vest and is reduced for estimated forfeitures. Forfeitures are estimated atactual experience. The assumptions used in the time of grant and revised, as necessary, in subsequent periods if actual forfeitures differ from those estimates.

The Company periodically issues unvested (“restricted”) shares of its common stock to employees as equity incentives. The Company’s restricted stock vests upon the satisfaction of a recipient’s service condition, which is satisfied over a period of years. The restricted shares vest over certain period and remain subject to forfeiture if vesting conditions are not met. The Company values the shares based on the price per share of the Company’s shares at the date of grant and recognizes the value asBlack-Scholes-Merton Option Pricing model could materially affect compensation expense ratably over the vesting period.recorded in future periods.

Basic and Diluted LossIncome (Loss) Per Share

Basic lossincome (loss) per share is computed by dividing the net lossincome (loss) applicable to common stockholders by the weighted average number of outstanding common shares during the period. Shares of restricted stock subject to vesting are included in the basic weighted average number of common shares outstanding from the time they vest. Diluted lossincome (loss) per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued. Shares of restricted stock are included in the diluted weighted average number of common shares outstanding from the date they are granted unless they are antidilutive. Diluted lossincome (loss) per share excludes all potential common shares if their effect is anti-dilutive. The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive:

SCHEDULE OF ANTI-DILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE

Patents and Patent Application Costs

Although the Company believes that its patents and underlying technology have continuing value, the amount of future benefits to be derived from the patents is uncertain. Accordingly, patent costs are expensed as incurred.

Research and Development

Research and development costs consist primarily of fees paid to consultants and outside service providers, patent fees and costs, and other expenses relating to the acquisition, design, development and testing of the Company’s treatments and product candidates. Research and development costs are expensed as incurred.

Fair Value of Financial Instruments

FASB ASC 825, “Financial Instruments” requires that the Company disclose estimated fair values of financial instruments. Financial instruments held by the Company include, among others, accounts receivable, accounts payable and long-term debt. The carrying amounts reported in the balance sheets for assets and liabilities qualifying as financial instruments are a reasonable estimate of fair value.

Recent Accounting PronouncementsSegments

As of June 30, 2023, the Company has five operating business segments: (i) Environmental Services, (ii) Biochar Products and Solutions, (iii) Stream Mitigation Banking, (iv) Environmental Security Services, and (v) Cannabinoid Drug Development. In May 2014,October 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from ContractsCompany began operating under two segments: (i) Graphium Biosciences, Inc., a wholly-owned subsidiary of the Company, reports the operating results of our cannabinoid drug development segment, which is advancing a broad portfolio of glycosylated cannabinoid prodrugs that have been developed to unlock the rebalancing effects of the endocannabinoid system to address numerous chronic conditions, and (ii) the Range Reclamation Entities, which are wholly-owned subsidiaries of the Company, report the operating results of the Environmental Services segment, which provides land reclamation, water restoration and environmental consulting services to mining and non-mining customers. The Biochar Products and Solutions, Stream Mitigation Banking, and Environmental Security Services business segments began operations in the first quarter of 2023.

In accordance with Customers. ASU 2014-09the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAPmanagement approach to segment reporting, establishes requirements to report selected segment information quarterly and replace it with a principle based approach for determining revenue recognition. Under ASU 2014-09, revenue is recognized when a customer obtains control of promised goods orto report annually entity-wide disclosures about products and services, major customers, and is recognizedthe countries in an amount that reflects the consideration which the entity expectsholds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to receive in exchange for those goods or services. their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing, and distribution processes.

Recent Accounting Pronouncements

In addition,June 2016, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has recently issued ASU 2016-08,2016-13, Measurement of Credit Losses on Financial Instruments. ASU 2016-10,2016-13 requires entities to use a forward-looking approach based on current expected credit losses to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-11, ASU 2016-12, ASU 2016-20, and ASU 2017-05, all of which clarify certain implementation guidance within ASU 2014-09. ASU 2014-09 is2016-13 was effective for interim and annual periodsthe Company beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. The standard can be adopted either retrospectively to each prior reporting period presented (full retrospective method), or retrospectively withJanuary 1, 2023. This did not have a material effect on the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company is currently in the process of analyzing the information necessary to determine the impact of adopting this new guidance on itsCompany’s financial position, results of operations, andor cash flows. The Company will adopt the provisions of this statement in the quarter beginning April 1, 2018.

In February 2016, the FASB issued ASU No. 2016-02, Leases. This update will require the recognition of a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease payments, for all leases with terms longer than 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the statement of comprehensive income and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. Upon adoption, leases will be recognized and measured at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its financial statements and related disclosures.

In July 2017, the FASB issued ASU 2017-11,Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. ASU 2017-11 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value of a down round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. The guidance in ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, and the guidance is to be applied using a full or modified retrospective approach. The adoption of ASU 2017-11 is not expected to have an impact on the Company’s financial statements and related disclosures because the conversion feature of the Company’s warrants have features other than down round provisions that require current accounting treatment and classification.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

2. DERIVATIVE LIABILITYACQUISITION OF RANGE ENVIRONMENTAL RESOURCES AND RANGE NATURAL RESOURCES

In May 2015,2022, the Company and its wholly-owned subsidiary, Daedalus Ecosciences, Inc., entered into a share purchase agreement with Range Environmental Resources, Inc. (“Range Environmental”), and Range Natural Resources, Inc. (“Range Natural”, and collectively with Range Environmental, the “Range Reclamation Entities”), and the two (2) shareholders of the Range Reclamation Entities (the “Range Shareholders”) (the “Share Purchase Agreement”), under which the Company issued certain warrants which included an anti-dilution provision that allows for the automatic reseta total of the exercise price of the warrants upon future sale10,000,000 shares of the Company’s common stock warrants, options, convertible debt or any other equity-linked securities at an issuance, exercise or conversion price belowto the current exercise priceRange Shareholders and Daedalus Ecosciences paid cash consideration of $1,000,000 to the Range Shareholders for 80% of the warrants. In addition,outstanding common stock of each of the Range Reclamation Entities.

Subsequent to entering into the Share Purchase Agreement, the Company determineddiscovered that the warrants can be settled for cash at the holders’ option in a future fundamental transaction, as defined. As a resultJoshua Justice, one of the anti-dilution and fundamental transaction provisions, the Company determined that the conversion feature of the warrants should be separated from the host contract, be recognized as a derivative liability, and re-measured at each reporting period with the change in value reportedRange Shareholders (“Justice”), made certain misrepresentations in the statement of operations.

At March 31, 2017, the balance of the derivative liabilities was $240,791. During the nine months ended December 31, 2017, the Company recorded a decrease in derivative liability of $38,955. At December 31, 2017, the balance of the derivative liabilities was $201,836.

At December 31, 2017 and March 31, 2017, the derivative liabilities were valued using a probability weighted Black-Scholes-Merton pricing model with the following assumptions:

The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock. The expected life of the warrants was determined by the expiration date of the warrants. The expected dividend yield was based on the fact that the Company has not paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future.

3. STOCKHOLDERS’ EQUITY

Equity Financing

Share Purchase Agreement. On DecemberJuly 12, 2017,2022, the Company entered into a Separation Agreement, by and among the Company, Daedalus Ecosciences, the Range Reclamation Entities, and Justice and his spouse (the “Separation Agreement”) pursuant to which Justice: a) acknowledged that his employment with the Range Reclamation Entities was terminated for cause effective June 30, 2022; b) returned the 5,000,000 shares of the Company’s common stock that had been issued to him under the terms of the Share Purchase Agreement; c) transferred his 10% interest in each of the Range Reclamation Entities to Daedalus Ecosciences; and d) paid Daedalus Ecosciences cash in an amount of $250,000. As a result, only 5,000,000 of the Company’s common stock issued to the Range Shareholders is considered to have been issued in exchange for 90% of the outstanding common stock of each of the Range Reclamation Entities.

Subsequently, on October 11, 2022, Daedalus Ecosciences and Jeremy Starks, the remaining Range Shareholder (“Starks”), entered into a share purchase agreement, effective as of May 11, 2022 (the “Starks Agreement”), pursuant to which Starks exchanged his 10% common stock ownership of the Range Reclamation Entities for 10% of the Cash Dividends and Sale Proceeds (as both terms are defined in the Starks Agreement) of the Range Reclamation Entities. As a result of the merger of Daedalus Ecosciences into Malachite as of December 31, 2022, the Range Reclamation Entities are reported as wholly-owned subsidiaries of the Company in the financial statements made part of this Form 10-Q. No other changes were made to the consideration received by Starks as part of the Share Purchase Agreement and he remains as President of each of the Range Reclamation Entities.

The Company accounted for the transaction as a business combination in accordance ASC 805 “Business Combinations”. The Company has performed an allocation of the purchase price paid for the assets acquired and the liabilities assumed. The fair values of the assets acquired are set forth below. The allocation of the purchase price is based on management’s estimates.

SCHEDULE OF BUSINESS ACQUISITION ALLOCATION OF PURCHASE PRICE

Goodwill has an assigned value of $751,421 and represents the value of the Range Reclamation Entities’ brand reputation, customer base and employee relations.

3. GOODWILL

Goodwill was $751,421 at June 30, 2023 and at December 31, 2022. The goodwill as of both dates represents the value of the Range Reclamation Entities’ employee relations. Goodwill by reportable segment is as follows:

SCHEDULE OF GOODWILL

4. EQUITY

Issuance of Common Stock and Warrants

On April 11, 2023, the Company entered into securities purchase agreementagreements providing for the issuance and sale by the Company of 933,332(i) 2,733,334 shares of the Company’s common stock (the “Shares”) at a price of $0.15 per share and (ii) warrants to purchase up to 466,667an additional 2,733,333 shares of the Company’s common stock (the “Warrants”, and the shares issuable upon exercise of the Warrant, the “Warrant Shares”) at a price of $1.50$0.60 per share. After deducting for fees and expenses, the netThe Warrants expire on April 11, 2028. The aggregate proceeds to the Company from the sale of the sharesShares and warrantsWarrants were approximately $1,395,000.$400,000.

On July 26, 2017, the Company entered into a securities purchase agreement providing for the issuance and sale by the Company of 666,667 shares of the Company’s common stock and warrants to purchase up to 333,334 shares of the Company’s common stock, at a price of $1.50 per share. After deducting for fees and expenses, the net proceeds to the Company from the sale of the shares and warrants were approximately $995,000.

Common stock issued to employees with vesting terms

The Company has issued shares of common stock to employees and directors that vest over time. The fair value of these stock awards are based on the market price of the Company’s common stock on the dates granted, and are amortized over vesting terms ranging up to three years.

At March 31, 2017, the accumulated vested balance of stock awards was $310,710. In December 2017, the Company issued an aggregate of 200,000 shares of its common stock to an officer and a director of the Company, with aggregate fair value of $362,000 at the grant date, which vest over a period of 14 months from the date of the grant. During the nine months ended December 31, 2017, we recorded expense related to the fair value of stock awards that vested of $309,183. At December 31, 2017, the amount of unvested compensation related to these awards is approximately $463,000, and will be recorded as expense over 1 year.

Shares of restricted stock granted above are subject to forfeiture to the Company or other restrictions that will lapse in accordance with a vesting schedule determined by our Board. In the event a recipient’s employment or service with the Company terminates, any or all of the shares of common stock held by such recipient that have not vested as of the date of termination under the terms of the restricted stock agreement are forfeited to the Company in accordance with such restricted grant agreement.

The following table summarizes restricted common stock activity:

Common stock issued for services

During the nine months ended December 31, 2017, the Company issued a total of 184,968 shares of common stock to three consultants as payment for services and recorded expense of $313,676 based on the fair value of the Company’s common stock at the issuance dates.

4. STOCK OPTIONS

A summary of the Company’s stock option activity during the nine months ended December 31, 2017 is as follows:

A summary of5. STOCK OPTIONS

Stock options issued during the Company’s stock options outstanding and exercisable as of December 31, 2017 is as follows:

In the ninethree months ended December 31, 2017,June 30, 2023 and the three months ended June 30, 2022

During the three months ended June 30, 2023, the Company granted options to two outside advisors to purchase an aggregate of 470,000 options to purchase400,000 shares of the Company’s common stock with exercise prices ranging from $1.59 to $1.81of $0.18 per share to five employees and two directors, that expire tenfive years from the date of grant. TheOptions to purchase 200,000 shares vested upon grant and options issued to thepurchase 200,000 vest over two directors have a vesting period of one year and the options issued to employees all have vesting periods of 24 months.years. The fair value of each option award was estimated on the date of grant using the Black-Scholes option pricingBlack-Scholes-Merton Option Pricing model based on the following assumptions: (i) volatility rate between 123.13%273.24% and 124.88%273.87%, (ii) discount rate between 2.33%1.4% and 2.265%1.55%, (iii) zero expected dividend yield, and (iv) expected life of 65 years, which is the average of the term of the options and their vesting periods.options. The total fair value of thesethe option grants at their grant dates was approximately $740,000.$71,840, $35,920 of which was allocated to general and administrative expenses during the three months ended June 30, 2023.

No stock options were granted to directors, advisors, and employees during the three months ended June 30, 2022.

During the ninethree months ended December 31, 2017, we expensedJune 30, 2023, total stock-based compensation expense related to vested stock options of $842,121, andwas $35,920. During the three months ended June 30, 2022, the Company recorded no stock-based compensation expense related to vested stock options. At June 30, 2023, the remaining unamortized cost of the outstanding stock-based awards at December 31, 2017 was approximately $1,497,000. This cost$35,920 and will be amortized on a straight linestraight-line basis over a weighted averagethe remaining vesting period of 2 years.

A summary of the Company’s stock option activity during the six months ended June 30, 2023 is as follows:

SUMMARY OF STOCK OPTION ACTIVITY

At December 31, 2017,June 30, 2023, the 3,216,7109,792,544 outstanding stock options had anno intrinsic valuevalue.

A summary of approximately $2,659,000.

5. WARRANTS

At December 31, 2017, warrants to purchase common shares werethe Company’s stock options outstanding as of June 30, 2023 is as follows:

SCHEDULE OF STOCK OPTION OUTSTANDING

In conjunction withA summary of the December 2017 Offering (see Note 3), the Company granted to investorsCompany’s stock options outstanding and exercisable as of June 30, 2023 is as follows:

SCHEDULE OF STOCK OPTIONS OUTSTANDING AND EXERCISABLE

6. WARRANTS

A summary of warrants to purchase up to 466,667 sharescommon stock issued during the six months ended June 30, 2023 is as follows:

SCHEDULE OF WARRANTS ACTIVITY

At June 30, 2023, the 25,046,669 outstanding stock warrants had no intrinsic value.

7. LINES OF CREDIT

In November 2022, the Company secured a bank line of credit with a limit of $1,000,000. The line of credit expires on November 30, 2023and bears interest at one percent (1%) above the prime rate (9.25% at June 30, 2023). As of June 30, 2023, the balance due under the line of credit was $200,000.

In June 2023, the Range Reclamation Entities secured a separate bank line of credit with a limit of $1,000,000. This line of credit is secured by all of the Company’s common stock. The warrants were exercisable immediately, have an exercise priceRange Reclamation Entities’ fixed assets. This line of $2.00 per share, credit expires on June 24, 2024and expirebears interest at the prime rate (8.25% at June 30, 2023). As of June 30, 2023, the balance due under this line of credit was $1,000,000.

8. LONG-TERM DEBT OBLIGATIONS

Long-term debt consists of debt on the three year anniversary of the date of issuance. The exercise price of the warrants is subject to adjustment for standard anti-dilution provisions, such as stock dividendsvehicles and splits, subsequent rights offerings and pro rata distributions to the Company’s common stockholders. The exercisability of the warrants may be limited if, upon exercise, the holder or any of its affiliates would beneficially own more than 4.99% or 9.99% of the Company’s common stock.

In conjunction with the July 2017 Offering (see Note 3), the Company granted to investors warrants to purchase up to 333,334 shares of the Company’s common stock. The warrants were exercisable immediately, have an exercise price of $2.00 per share, and expire on the three year anniversary of the date of issuance. The exercise price of the warrants is subject to adjustment for standard anti-dilution provisions, such as stock dividends and splits, subsequent rights offerings and pro rata distributions to the Company’s common stockholders. The exercisability of the warrants may be limited if, upon exercise, the holder or any of its affiliates would beneficially own more than 4.99% or 9.99% of the Company’s common stock.

At December 31, 2017, the 1,164,422 outstanding warrants had no intrinsic value.

6. RELATED PARTY OBLIGATIONS

On April 23, 2012, the Company entered into a lease agreement with One World Ranches,equipment, which is jointly-owned by Dr. Avtar Dhillon, the Chairman of the Company’s Board of Directors, and his wife, to rent the space being usedserves as the Company’s principal office and laboratory facility. collateral. Interest rates range from 3.69% to 9.95% for 2023. The original term of the lease wasdebt matures from May 1, 2012 to May 1, 2017. In May 2017, the Company extended the lease2023 through May 1, 2020. Our rent payments thereunder were $2,300 per month until May 1, 2017 and increased to $2,600 per month on May 1, 2017. Aggregate payments under the lease for the nine months ended December 31, 2017 and 2016 were $25,700 and $20,700, respectively.2028.

7. LEGAL AND OTHER PROCEEDINGS

On August 19, 2016, we filed a resale registration statement on Form S-1 (“Form S-1”) with the SEC to register 2,650,000 shares of our common stock and 7,950,000 shares of our common stock issuable upon exercise of certain warrants. We received a letter from the Washington D.C. office of the SEC dated December 10, 2016, stating that the staff of the SEC was conducting a Section 8(e) examination with respect to this Form S-1 and that the Division of Corporate Finance would not take any further action on the Form S-1 while the examination was pending. We received subpoenas to produce documents dated December 14, 2016, and January 23, 2017, and a further subpoena for testimony and any supplemental production of documents dated June 5, 2017. The document requests were primarily in connection with this matter. We have complied with all document requests and the Company’s CEO will provide testimony when the SEC schedules such testimony, which we believe will be sometime before the end of September 2018.

As of December 31, 2017, we had accrued approximately $11,000 in legal fees related to the SEC examination.

8. SUBSEQUENT EVENTS

In February 2018, the Company issued a total of 75,000 shares of common stock to one consultant as payment for services and recorded expenses of $144,000 based on the fair value of the Company’s common stock at the issuance date.

A summary of payments due under the long-term debt by year is as follows:

SCHEDULE OF MATURITIES OF LONG TERM DEBT

9. MAJOR CUSTOMER AND CONCENTRATION OF CREDIT RISK

Sales to the Company’s largest customer were 94% and 92% of total sales for the three months ended June 30, 2023 and the six months ended June 30, 2023, respectively. Sales to the Company’s two largest customers were 91% of total sales for the three and six months ended June 30, 2022.

Accounts receivable from the same customer were 96% of total accounts receivable and unbilled receivables as of June 30, 2023. Accounts receivable from the Company’s two largest customers were 93% of total accounts receivable and unbilled receivables as of June 30, 2022.

10. COMMITMENTS AND CONTINGENCIES

The Company received a letter in February 2021 from counsel for the Company’s director’s and officer’s insurance carrier (the “insurer”) demanding that the Company reimburse the insurer for sums advanced by the insurer to a former director of the Company as defense costs in connection with a claim purportedly arising under a previous directors and officers insurance policy. The Company believes it has no liability for this claim on the basis of, among other things, Nevada law, the Company’s governing documents and the language of the policy. Accordingly, as of June 30, 2023, no contingent liability has been recorded in the Company’s consolidated statements of financial condition for this matter.

11. SEGMENT INFORMATION

ASC 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about services, categories, business segments and major customers in financial statements. The Company has five reportable segments that are based on the following business units: (i) Environmental Services, (ii) Biochar Products and Solutions, (iii) Stream Mitigation Banking, (iv) Environmental Security Services, and (v) Cannabinoid Drug Development. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing and distribution processes.

The five reportable segments that result from applying the aggregation criteria are as follows:

The Company operated two reportable business segments during the three and six months ended June 30, 2022, the Cannabinoid Drug Development and Environmental Services segments. The other business segments began operating in 2023.

The Company had no inter-segment sales for the periods presented.

Summarized financial information concerning the Company’s reportable segments is shown as below:

SCHEDULE OF FINANCIAL INFORMATION OF REPORTABLE SEGMENT

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